March 20 (Bloomberg) -- General Electric Co. distanced
itself from a report that it might consider spinning off the
finance unit, a move that would eliminate the source of half its
profit.

Dow Jones reported earlier today that Chief Executive
Officer Jeffrey Immelt told business leaders in Sydney that he’d
“never say never” about a spinoff of GE Capital Corp., which
provided 50 percent of its parent’s profit last year. Immelt
never implied a spinoff was under consideration, said Russell
Wilkerson, a GE spokesman.

“As Jeff clearly stated, there are no plans to split off
GE Capital from the parent company,” Wilkerson said in an e-mail. His comments were taken out of context in the Dow Jones
report, Wilkerson said.

Immelt has been shrinking GE Capital since the financial
crisis, when credit losses at the unit mounted and its access to
money markets withered, imperiling the entire company. Ending
net investment, a measure of the division’s assets, shrank to
$419 billion as of Dec. 31, an 18 percent decline since the
beginning of 2009, GE has said.

GE Capital had 2012 profit of $7.4 billion, compared with
its parent’s $14.7 billion in earnings from continuing
operations, the company said in January.

Stock Valuation

A Dow Jones spokeswoman said the story framed Immelt’s
comments correctly.

“Both the headline and the story give the proper context
around the CEO’s comments, citing there are no current plans to
pursue a spinoff of GE Capital,” said Colleen Schwartz.

Cutting ties with the finance division would hurt GE
shareholders instead of benefiting them because the Fairfield,
Connecticut-based company trades at a price that’s higher than
its value if broken up, Jeff Sprague, an analyst at Vertical
Research, wrote today in a note to clients.

“The company is being rewarded in a sense for being
constituted in its current configuration,” Sprague said in a
telephone interview. “It might sound good in theory but it’s
just not a good idea to split the company given where the
valuation is.”

Selling or spinning off parts of GE Capital, such as its
private-label credit card business or real estate holdings,
would be beneficial to shareholders because they “have no
place” in the unit’s portfolio, Sprague said in the note.

Support Pact

Further complicating a potential spinoff is a 1991
agreement that requires GE to provide financial support to GE
Capital if its earnings were to fall to levels that threaten its
ability to cover its obligations. A 2009 amendment further
strengthened the pact by requiring majority support among GE
Capital bondholders to split off the unit.

GE climbed 0.6 percent to $23.46 at the market close in New
York. The shares have advanced 12 percent so far this year,
trading in line with the Standard & Poor’s 500 Index on a price-earnings basis.

The cost to protect GE Capital’s debt against losses with
credit default swaps climbed 6 basis points to 99.1 basis points
at 4:04 p.m. New York time, according to Bloomberg prices. It
earlier widened as much as 8 basis points in the biggest gain
since September. A basis point equals $1,000 annually on a
contract safeguarding $10 million of debt.

Credit-default swaps on individual names with investment-grade ratings such as GE Capital, which rise as investor
confidence deteriorates and fall as it improves, rolled to new
versions today. The swaps are created every six months to add
time to the contract. Longer-dated contracts are typically
higher.